The ultimate executive perk: free health care

Managers and select employees aren't paying a dime out of pocket

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Over the past few years, companies have been shifting more of the cost of health care to their employees by imposing higher co-payments, deductibles, co-insurance and other out-of-pocket costs.

But it turns out that while the rank and file struggle with a bigger share of their medical bills, some companies are quietly picking up the entire out-of-pocket tab for their managers and select employees.

Most employees know their managers are part of a bonus pool and likely are eligible for an attractive package of stock options. But chances are they do not know their bosses may not be paying a dime to put their children in braces, outfit the family in new eyeglasses or undergo major surgery.

"For your executives who deserve more," says an online brochure from Exec-U-Care, which advertises that its special insurance plan can "increase your employees' compensation package by as much as $100,000."

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One of the advantages of what's known in the industry as executive medical reimbursement insurance is that companies have the "freedom to reward only those people who have truly earned special recognition," according to the program, which is sold by Lincoln Financial Group and under- written by the Lincoln National Life Insurance Co.

Another benefit to the special insurance, Lincoln Financial Group says, is that companies can deduct the cost of premiums from their corporate income taxes as a reasonable and ordinary cost of doing business. The insurer was unable to provide a representative for comment.

While managers are getting their health care "extras" re- imbursed, rank-and-file employees are shouldering more of the cost of medical care.

The benefits consulting firm Aon Hewitt reports the average employee in 2013 paid $2,239 to cover the cost of co-payments, co-insurance and deductibles. That represents a 12.8 percent increase over the previous year, according to the firm's database, which tracks the health care costs of 516 large U.S. employers that represent 12.8 million participants.

Out-of-pocket expenses

The financial value of Exec-U-Care was highlighted in an age- discrimination lawsuit filed in Houston recently against Pemex Procurement International, an affiliate of Mexico's state-owned oil company.

The plaintiffs contend they didn't just lose their jobs and their salaries. The company provides Exec-U-Care benefits to its managers and vice presidents, and in the case of one of the employees who filed suit, the financial loss of losing the coverage for out-of-pocket expenses was especially staggering.

The employee, an operations support engineer, had a debilitating stroke in 2001. Two physicians recommended that he use a $6,326 hand-held electrical adaptor, but the company's insurance carrier deemed it was experimental and would not pay for it.

However, the Exec-U-Care program picked up that tab as well as many more, according to the lawsuit. In 2012, Exec-U-Care paid nearly $25,000 in out-of-pocket medical expenses for the engineer.

A surprise

Mark Oberti, an employment lawyer with Oberti Sullivan in Houston who is representing the seven former employees, recalled how surprised he was when one of his clients told him about the benefit plan and the expenses that it covered.

"I've never heard of it before," Oberti said. He said the only health care perk he runs across is when companies pay for special concierge services for their executives so they can get appointments faster and get back to work sooner.

Not rare

But it turns out the supplemental insurance programs are relatively common, said Houston tax and employee benefits lawyer Michael Abbott of Gardere in Houston.

ArmadaCare has an "Ultimate Health" program that reimburses out-of-pocket costs for carefully chosen participants that companies want to keep happy and productive.

"Every type of company has a select group of individuals who are ultimately responsible for the company's performance," ArmadaCare says on its website. "They are the visionaries, the holders of critical client relationships or the leaders of important operations who move the company forward."

A representative of ArmadaCare was not available to discuss its offerings.

Buying extra coverage

The programs have flourished, in part, because traditional insurance policies do not have to adhere to the same discrimination rules that govern self-funded plans, Abbott said. A company that buys an off-the-shelf insurance policy for its employees can buy extra coverage for its executives.

It gets thornier with self-funded plans, which have a legal obligation to make sure they don't provide better benefits to their highly compensated employees than to their rank and file. Some companies got around that by having their executives pay for the additional coverage, Abbott said, while others go ahead and foot the bill despite the rules.

He said he hasn't seen a lot of enforcement action to date, but the issue is beginning to get more attention, and he thinks federal regulators may become more aggressive, especially since the Affordable Care Act toughened the anti-discrimination rules for both self-funded and off-the-shelf plans.

Abbott said that in another couple of years, companies that offer their executives enhanced benefits through regular insurance or through a self-funded plan can face a penalty of $100 per day for each employee who doesn't have the extra perks.